Characterizing the accuracy of dod operating and support cost estimates

Pages103-132
Published date01 March 2013
Date01 March 2013
DOIhttps://doi.org/10.1108/JOPP-13-01-2013-B004
AuthorErin T. Ryan,David R. Jacques,Jonathan D. Ritschel,Christine M. Schubert
Subject MatterPublic policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 13, ISSUE 1, 103-132 SPRING 2013
CHARACTERIZING THE ACCURACY OF DOD OPERATING AND
SUPPORT COST ESTIMATES
Erin T. Ryan, David R. Jacques, Jonathan D. Ritschel, and
Christine M. Schubert*
ABSTRACT. For decades, the Department of Defense (DoD) has employed
numerous reporting and monitoring tools for characterizing the acquisition
cost estimates of its programs. These tools have led to dozens of studies
thoroughly documenting the magnitude and extent of DoD acquisition cost
growth. However, little attention has been paid to the behavior of the other
main cost component of a system's life cycle cost: Operating and Support
(O&S) costs. Consequently, the DoD has little knowledge regarding the
accuracy of O&S cost estimates or how that accuracy changes over time. In
a previous paper, the authors described an analytical methodology for
remedying this deficiency via a study to characterize the historical accuracy
of O&S cost estimates. The results are presented here, and indicate there
tend to be large errors in DoD O&S cost estimates, and that the accuracy of
the estimates improves little over time.
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* Erin T. Ryan, Major, Ph.D. Assistant Professor; David R. Jacques, Ph.D.,
Associate Professor; Jonathan D. Ritschel, Ph.D., Assistant Professor, are all
in the Department of Systems Engineering and Management, Air Force
Institute of Technology (AFIT). Christine M. Schubert, Ph.D., Assistant
Professor is in the Department of Mathematics and Statistics at AFIT. Major
Ryan is researching how to use expected life cycle costs as a means of
valuing flexibility in system design. Dr. Jacques’s research interests are in
the areas of concept definition and evaluation, architecture modeling, and
optimal system design. Lt Col Ritschel’s research interests include public
choice, the effects of acquisition reforms on cost growth in DOD weapon
systems, research and development cost estimation, and economic
institutional analysis. Dr. Schubert's research interests include classification
techniques, ROC curve theory and extensions, information fusion,
longitudinal modeling, regression and regression extensions, survey design
and analysis, and general biostatistics.
Copyright © 2013 by PrAcademics Press
104 RYAN, JACQUES, RITSCHEL & SCHUBERT
INTRODUCTION AND MOTIVATION
According to the Department of Defense (DoD), the definition of
Life Cycle Cost (LCC) is the total cost to the government spanning all
phases of theprogram’s life: development, procurement, operation,
sustainment, and disposal (DoD, 1992). Note that this definition
includes some costs accrued before a system formally enters the
acquisition phase (e.g., concept refinement and technology
development) as well as certain costs accrued as the system
transitions out of sustainment (e.g., demilitarization and disposal).
These initial and final costs—though sometimes sizeable from an
absolute perspective—tend to be negligible when compared to the
costs incurred during the program’s acquisition phase and its
Operations and Support (O&S) phase (DoD CAIG, 2007; DAU, 2012).
Therefore, one can state, to a high degree of accuracy, that a
system’s LCC is simply the sum of its total acquisition costs and its
total O&S costs.
Of these two cost components, the DoD has historically placed
significantly greater emphasis on the acquisition side of the equation.
Over the years, a plethora of control and oversight accountability
mechanisms have been implemented with the expressed purpose of
improving the execution and/or management of the acquisition
phase of defense programs. Meanwhile, the O&S sustainability
considerations have been perennially neglected or subordinated to
acquisition requirements or program survival (DoD, 2009; Choi, Alper,
Gessner, Jondrow, Koopman, & Groo, 2009).
By virtue of its traditional focus on the acquisition component of a
system’s life cycle, the DoD has managed to gain a variety of valuable
insights into the nature of the acquisition costs of defense, including
how accurate acquisition cost estimates are and how they tend to
behave over time. These insights have provided the framework for
many revisions to the acquisition process and provided the
opportunity for numerous improvements to the acquisition cost
component of a system’s LCC.
The same cannot be said for the O&S cost projections. Consider
that between 1945 and 2008, there were at least 130 separate
studies and commissions focused on the acquisition of DoD systems,
dozens of which involved the accuracy of the cost estimates (DoD,
2009). During this same time period, there appears not to be a single
published study pertaining to the accuracy of O&S cost estimates.

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